The Death Of The Flagship

At the hands of lesser priced smartphones

This is probably not coming as any particular surprise to those of us that have been paying attention. It’s true, the era of the flagship is coming to an end.

Sony has already made significant job cuts, and CEO Kazuo Hirai has been quoted saying the company will “no longer pursue sales growth in areas such as smartphones…” which means that the 2015 Xperia Z5 might very well be the last of their flagship line.

Even Samsung, the number 1 in global smartphone sales worldwide is experiencing a slow decline in sales. And why? Many people are claiming it has to do with the poor performance of the Galaxy S6.

But it’s not only Sony. Even Samsung, the number 1 in global smartphone sales worldwide is experiencing a slow decline in sales. And why? Many people are claiming it has to do with the poor performance of the Galaxy S6. But actually, the only reason they managed to clear a $5 billion profit margin in their first quarter of the year is because Samsung has increased their mid-range smartphone shipment to Southeast Asia, the Middle East, and Africa.

Meanwhile, Apple has been charging $600-800 for their flagship iPhone, in comparison to Android’s phone, which average globally around $250-300. Apple’s sales are entirely dedicated to high-end consumers.

Apple has managed to take around 10% of all phones sold in the world every quarter, and manages around ⅔ of the high-end, premium market. The remaining ⅓ is Android (mostly Samsung). But Android phones, in addition to that margin of the premium phones, also collectively take around 40% of the market that sell at a lesser cost.

But actually, the only reason Samsung managed to clear a $5 billion profit margin in their first quarter of the year is because they has increased their mid-range smartphone shipment to Southeast Asia, the Middle East, and Africa.

Even with Apple’s high sale prices, there is not much more money than they can make, globally. Sure, the Chinese market is expanding, which is the only reason Apple did so well this year. Well, the average Chinese income and the 4G adoption rate. Next year, who will they turn to in order to increase sales?

Apple will never make a “mid-range” phone, it goes against their policy. Further, it’s obvious that Apple hikes their prices. We all know it doesn’t actually cost $600-800 dollars to make a phone and turn a profit. But more importantly, in 2014, iPhones on average cost $400-600 dollars. Which means the price is slowly increasing.

This is particularly problematic for emerging markets, which is where the future profits lie. This year, the iPhone grew 51.4% in emerging markets alone, again, mostly thanks to China. But the biggest growth this year is sales has come from Asia Pacific and the Middle East, which has had a 20% year over year growth. China, however, had a 10% decrease in the second quarter of 2015, in comparison to the second quarter of 2014. What does this mean? That the Chinese market has reached its pinnacle, and now it will not only be slowing down, but costing down. Even as the high-end market is expected to grow, along with Chinese economic progress, it will never have the rapid expansion it had last year, which means Apple’s profit will not reflect last years.

Obviously, smartphone manufacturers should be prepared to gear the lower-range smartphones for Africa, because when Africa bursts, it will be huge. In the next coming years, Sub-Saharan Africa will become the most populous place in the world, and until now, major telecommunications providers have stayed out of the continent.

So where to look next? The West? Certainly not. Western Europe declined on a year basis for the first time thanks to Spain and France, and Russia’s economic crisis has also negatively impacted sales. Asia Pacific or the Middle East?

Maybe, but for now, that is a massive industry for low-to-mid-rangers. Smartphones priced from $0-250 managed an increased share to 56%, up from 52% in the second quarter of last year. Obviously, in terms of the Asia Pacific, we need to set our eyes to India and Indonesia, but the major player many are leaving out is Africa.

Obviously, smartphone manufacturers should be prepared to gear the lower-range smartphones for Africa, but when Africa bursts, it will be huge. In the next coming years, Sub-Saharan Africa will become the most populous place in the world, and until now, major telecommunications providers have stayed out of the continent.

But as more and more emerging markets begin to produce their own homegrown brands, like Cherry Mobile in the Philippines and Xiaomi, which has now taken the world by storm, it’s not too long until the big name in smartphones is everything except for flagship.

Some major players, such as Samsung, are already aware of this, and have kept various price ranges to stay afloat. But the rest need to re-think their strategy. Apple is winning a dying game.

Low range devices and mid-range devices are slowly getting more powerful, in terms of economics, but also hardware specs. Soon, there won’t be any reason at all to buy.

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